‘It Could Have Been Deliberate’: Silver Flash Crash Theories Abound After ‘Glitch’

Right, so a lot of people are still wondering what the fuck happened to silver on Thursday evening when, just after 7, it collapsed 11% in seconds for no discernible reason:

As we put it:

Look, here’s the thing: you say “tomato“, I say “tomahto.”

Just like you say “glitch that caused silver to flash crash” and I say “consequence of batshit crazy market microstructure.”

But whatever you call it, call it “amusing”:

We also said that unlike the gold flash crash that hit last month, the market snapped back, which is likely to dispel the notion that this was more than a temporary fuck up.

Well, fast forward about 12 hours and some folks are trying to explain things. “If the drop had real volumes behind it, [prices] would not have bounced back so quickly,” Stuart Ive of OM Financial told WSJ. “It suggests trading error rather than anything more serious at this point of time.”

But not everyone is convinced. Take Ross Norman of gold dealer Sharps Pixley, for instance. He thinks there might be something more nefarious going on behind the scenes (just a “hint” of sarcasm there if you missed it).

“It could be a deliberate move. It happened when the market was illiquid,” Norman notes, adding that “any person who wants to do that wants to push markets lower.”

That of course assumes it was a “person.” Somehow that doesn’t seem like a safe assumption.

“No human being would sell silver like this”…

Meanwhile, Michael McCarthy, chief market strategist at CMC Markets thinks maybe you should just forget what you thought you saw and shut up about it. “It happens,” he said this morning. “It’s not common, but not unheard off either.”

No, it’s not unheard of, and in fact it will probably start happening more and more often given the evolution (or perhaps “devolution” is better) of market microstructure. After all, when shit like this “happens”, it discourages people from holding positions which reduces liquidity and makes it more likely that it will happen again.

Ultimately, our assessment is the same as it was last night: whatever caused it, it doesn’t say much for the stability of modern markets.

Writing about a subject is the best
way to educate yourself about it, and when I flick through past work I remember how much
they taught me, if no one else. Mainly they taught me that I didn’t know very much. But they
also taught me that most other people didn’t know much either. Thus, some key themes
which stand out include the illusory control of policy makers, the presumed knowledge of
those looking to them to actively do good, the ease with which we fool ourselves, and how
best to protect capital in the face of such unavoidable uncertainty. -- Dylan Grice